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I AGREE
24 Jan 2011
Hong Kong, January 24, 2011 -- Moody's Investors Service has assigned a first-time B1 corporate
family rating to Zhong An Real Estate Ltd.
Moody's has also assigned a provisional (P)B2 rating to the company's
proposed RMB-denominated USD senior unsecured bond issue.
The ratings outlook is stable.
The proceeds from the bond issue will be used to fund Zhong An's
land acquisitions and working capital requirements.
The bond's provisional rating status will be removed after Zhong
An has completed the issuance of the bonds, and all satisfactory
terms and conditions have been met.
RATINGS RATIONALE
"Zhong An's B1 corporate family rating reflects the company's
small-scale operations and material geographic and cash flow concentrations
in comparison to other rated Chinese developers," says Kaven
Tsang, a Moody's AVP/Analyst.
"Moody's expects that Zhong An's sales will be more
volatile due to the company's heavy reliance on a few key projects,
mainly Landscape Bay, the International Office Center, and
the Yuyao project," adds Tsang, who is also Moody's
lead analyst for Zhong An.
"In addition, its expansion plan will entail high execution
risk given its lack of a track record for such a rapid expansion,
as well as a more challenging Chinese property market in 2011,"
says Tsang.
The development of commercial properties such as the International Office
Center will partly mitigate the performance volatility stemming from the
negative impact of regulatory measures on the residential sector.
However, the sustainable demand for large-scale commercial
projects in Qianjiang Century City, Hangzhou remains untested.
Still, Zhong An's established brand in Hangzhou and its niche
business model, which focuses on the affluent Yangtze River Delta
region, will benefit from the demand for high-end properties
and the fast growing economies in the region over the medium to long term.
In addition, the company's projects and land bank in Hangzhou
are in good locations, and the land costs for some of the projects
have been low. These factors support the company's moderate
profit margin and allow for some flexibility for price adjustments in
a down market.
Zhong An's bond rating is notched down to B2 due to structural and
legal subordinations. The ratio of secured and subsidiary debt
to total assets stood at 21.3% as of June 2010. Moody's
expects that this ratio will stay around 20-25% for the
next year or two.
The stable outlook reflects Moody's expectation that Zhong An will maintain
its niche business model with its focus on Yangtze River Delta,
as well as obtaining funding from onshore banks.
The rating could be under pressure for a downgrade if (1) Zhong An's
sales or operating cash flow are weaker than anticipated; or (2)
its balance sheet cash is lower than expected; or (3) it materially
accelerates development and makes aggressive land acquisition funded by
debt.
Moody's would regard the following financial metrics as signals for downward
rating pressure: (1) adjusted debt/capitalization consistently above
55%; or (2) EBITDA interest coverage below 2-2.5x.
The prospects for upward rating pressure are limited over the near term.
Over the medium term, however, positive rating pressure could
emerge if Zhong An (1) achieves its planned sales growth with stable profit
margins; (2) decreases its geographic concentration risk; (3)
achieves a stable financial profile with adjusted debt/capitalization
of 45-50% and EBITDA interest coverage above 4-5x;
or (4) strengthens its liquidity by broadening its banking relationships
and expanding its free cash flow, which will support its growing
scale of operations.
The principal methodology used in this rating was Moody's Global
Homebuilding Industry published in March 2009.
Zhong An Real Estate Ltd. develops residential and commercial properties
in the Yangtze River Delta Area. It has a land bank of around 6.2
million sqm in gross floor area (for 2.2 million sqm of which it
has yet to obtain the land certificates) distributed mainly in Hangzhou
and Zhejiang Province, as well as Huaibei and Hefei in Anhui Province.
Zhong An also has a small investment portfolio, with a hotel (Holiday
Inn) and a retail mall (Highlong Plaza) in Hangzhou.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
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independent third-party sources. However, Moody's
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Please see ratings tab on the issuer/entity page on Moodys.com
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of each rating category and the definition of default and recovery.
Hong Kong
Kaven Tsang
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Hong Kong
Peter Choy
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
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Moody's Investors Service Hong Kong Ltd.
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JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns first-time B1/(P)B2 ratings to Zhong An
No Related Data.
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